It has been apparent for some time Australia's economic
golden years are fading into the rear-view mirror, Milford
Asset Management portfolio manager David Lewis says.
However, it was still surprising to see in last week's report
on the state of the Australian labour market just how
difficult the situation had become for Australian workers in
The most widely watched indicator of the labour market showed
the Australian unemployment rate moved just 0.1% higher in
the month of December, to 5.8%. At the start of 2013 it was
5.4%, and in June it was 5.7%.
The number of people employed in Australia dropped by 22,600
in December to its lowest ebb since March.
Through the whole of last year, the number of people with
jobs rose by just 54,600.
The last time such a small rise was recorded over a 12-month
span was in the year to October 2009.
Mr Lewis said, as in many countries in the world at present,
the unemployment rate was telling only part of the story.
When national statistical agencies calculated unemployment,
people were first asked if they were actively looking for
If the answer was no, they were not considered part of the
If the answer was yes, they were ''participating'' in the
labour force, and would be counted either as employed if they
had a job, and unemployed if not.
The unemployment rate was then calculated as the number of
people unemployed (looking for work, but without a job)
divided by the labour force, Mr Lewis said.
''The crucial piece of this story in Australia over the past
six months is that fewer and fewer people are actually
looking for a job. Technically, this reduces the number of
unemployed, and holds down the unemployment rate compared to
where it would otherwise have been.''
Most of these people saying they were not looking for a job
were probably doing so because they did not expect to find
one - which was bad news, he said.
If the participation rate had not changed from its prior
cyclical low in September 2009, the unemployment rate in
Australia would now be 6.9%, and would have risen by a full
1% since June.
''We believe this provides a more accurate reflection of how
difficult conditions are for Australian workers at present.
Conditions are nowhere as bad as in the early '90s recession
when there was 11% unemployment - but they are a lot worse
than the low published unemployment rate of 5.8% would
New Zealand's recent performance provides a sharp contrast.
Its unemployment rate of 6.2% fell by 1% versus the previous
The total number of jobs here grew by 2.4% over that time.
Participation in our labour force had improved, and there
were now 64.3% of the working-age population in employment,
up by 0.8% over the year.
All of those indicators highlighted a labour market that had
made strong steps forward over the year, Mr Lewis said.
In the short term, while conditions were not yet strong, the
labour market in New Zealand was improving.
''This helps create a virtuous cycle of more spending, more
jobs, and lower welfare costs. These factors tend to support
share markets, provided the situation does not get too strong
such as to require much higher interest rates to quell
In Australia, the labour market had weakened considerably in
That meant pressure on profits for consumer-facing companies.
The good news was indicators for the future health of the
Australian labour market such as confidence, house prices,
and job advertising were improving.
That suggested the recent weakness should stabilise.
If the labour market failed to stabilise, the Reserve Bank of
Australia would be forced into cutting interest rates again.
Parity on the Australia-New Zealand exchange rate then became
a real possibility, Mr Lewis said.